Doctors: You May Be Paying 60% Tax Right Now
Ndubuisi Egwim shows UK doctors why they may pay 60% tax above £100k due to personal allowance withdrawal. He walks through income tax, CGT, dividend tax, inheritance tax, and pension strategies using real numbers and a five-point checklist to reduce what you owe.
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Unfortunately, most people have no idea that they are even paying some of the taxes they're paying. That's a challenge. Many people don't even know some of the taxes that they already paid. If you save above your psa, then any interest above that psa, you've got to pay tax on it. Now if you invest your money and you get a return on investing, let's say you invested 20k and you made 10k. Now anything in your returns above 3000, that's a capital gains dollars. If you make income above 3,000, you've got to pay capital against tax. Now, even if you decide, okay, I've invested my money, now I've paid my capital gains so I can enjoy the rest of it, but you know what, I'm going to hand over some of this money to my family. Then if you die, I move on. There's one called inheritance tax which are taxed where you die. Right. So in terms of taxes, if you think about taxes, what's one word that comes to your mind? Just tell me one word. When you think about taxes and you think about hmrc. Okay, yeah, I didn't understand that one. I feel like you decided that we said money. Okay. I think a lot of us share the same frustrations and unfortunately most people have no idea that they are even paying some of the taxes they are paying. That's a challenge. Many people don't even know some of the taxes that they already paid. I'll give you an example. For instance, you pay your personal tax for your income. I said that would not be enough. If you pay that personal tax and let's say you decide, you know what, I'm going to save some of that money. If you save some of that money and then you save beyond what we call the psa, your personal savings allowance. I say it's not your prostate specific antigen. If you save above your psa, then any interest above that PSA, you've got to pay tax on it. Okay? This is money. You've already paid tax on the income, income tax and now you pay tax on the savings writing well, now I don't just want to save, I want to beat inflation. So I'm going to invest my money. Now, if you invest your money and you get a return on investing, let's say you invested 20k and you made 10k. Now anything in your returns above 3000 as a capital gains allowance, if you make income above 3,000, you've got to pay capital against tax on that and that capital gains tax will depend on what kind of taxpayer you are, what kind of taxpayer means, are you a basic rate taxpayer, are you a higher rate taxpayer, are you an additional rate taxpayer? So that will determine your capital gains tax. So obviously basic rate taxpayer will pay 18%. And just two years ago, 18 months ago it was 10%. Then the labor government raised it to 18% in their Halloween budget last year, which was why I disposed of a lot of my shares. Obviously, if your shares you've invested through an isa, then you don't have to deal with any of that now, even if you decide, okay, I've invested my money, now I've paid my capital gains so I can enjoy the rest of it. But you know what? I'm going to hand over some of this money to my family. Then if you die and move on, there's one called inheritance tax which you're taxed when you die. We jump into too much too quickly to the end. If you decide, okay, I'm going to buy a nice car, I'm going to like buy a nice tv, they have to pay VAT value added tax. And even if you run a business like me, at some point in your income, the government is going to ask you to charge your customers v8.20 and then pass it on to the government.
Okay, this could save you several thousands of pounds. Pounds, not just in your taxes and pensions. Have you fallen into the 60% tax trap as a doctor, healthcare professional, without even knowing? It's crazy. I know you think the highest tax you can pay is 45%, but here how it works. If your income exceeds 100,000, you start to lose your personal tax allowance and by the time you hit about 125,000, you've lost your entire tax allowance. This means you're paying an effective tax rate of 60%. That's not good. You lose a lot of other benefits with it. Now if you if it's something you've never thought about or you're worried you're not sure how to navigate it, you're in luck because I've written a very clear guide with a 10 point checklist that you can use to avoid the 60% tax trap. One of the biggest one is obviously paying more into your pension. But there are nine other steps you can take. Check the link in the description and download it for free. Let me know if it helps. Let's jump right back into this, the episode.
Now you decide to buy a house. This house, I bought it, I had to pay. What's the other one again? Stamp duty, land tax. Some of you all, you're familiar with this thing. Somebody said like, you've had to pay it recently, haven't you? Who was that? I can't remember who, I can't. I can't say who was it? So you had to pay stamp tax. So this is another tax I've. Look, if you read my book, you see, stamp duty is a joke. It started like maybe how many hundreds of years ago during a fight. There was a war. Yeah, they said, crazy. I agree with you. There's war between France and England. So stamp duty was to raise money for the war, like in the 16th century or whatever. The war has ended. The tax is still here. Okay, very interesting. Now, okay, you pay stampede tax. Okay, you decide to sell the house. It's accumulated some income. Then the it accumulated in value, you sell it. Then you have to pay capital gains tax. So all over the place now I've talked about dividends. Even if you decide, okay, I'm not going to sell my shares ever. I'm just going to collect the dividends. Then there's a dividend tax above 500. You think, I'm going to run a limited company, I'm going to run a business. So what I'm going to do, I run a limited company. And then you say, yeah, but you've got to pay corporation tax. And apart from that corporation tax, if you also pull out a dividend, there's going to be dividend tax. So basically, if you are investing or saving or just living your life without any thought about tax, you are definitely bleeding. I like a de reset bleeding. You're bleeding but you don't know. The difference is that some type of bleeding is torrential. Where medics, I can talk in those terms. Some type of bleeding is massive and you can tell. But there are also some bleeding that are just like a little upper GI bleeding. Until you do like an examination. You see Melina, so dark stools. But what happens? Eventually person become weak and tired, they're going to become breathless. You know your signs of anemia, palpitations, chest pain, breathless, fatigued and become dizzy. Right? So we want to clamp that tax bleed. We don't just want to talk about it. We don't want to go and strike about it. What we do is that we figure out how the system works, make sure that system is working to the best of our ability, as much as we can legally do. And I gave an example for those of you on Saturday. I give an example. I've been an investor for 21 years. So when I moved into the UK once I settled. I was a student at first. Once I started getting some income, I started investing. I thought, yeah, I know it's investing, I know what I'm doing. Value investing. I made a bit of money and then I had to pay capital against tax, which I didn't mind at first until I realized oh, there's something called Stock and shares ISA. You can imagine almost 10 years ago. I didn't know that. And my. They have already used an ISA to save to buy my first house. So I, I had not bought the house then, but I opened an ISA as a student only for me to find out, oh, the stock and shares isa. So now all this, my capital gains have got to pay a percentage of it in taxes. No, I didn't like that at all. I didn't mind paying capital gains tax in any other country I was investing. But as usual, if you find out that there's an opportunity to save tax is your duty to pay as much as is legally required, but not a penny more. That's my thinking. Because if you want to be generous, look, there's something called charity. You. Yeah, so I will pay what is legally required. I'm not going to cheat. But also I want to know all the available opportunities to save tax and I want to use them. I want us to have a systematic approach. That's why I say abcd. I have to think about from a holistic approach for taxes. I gave you an example. I was saving for my first house in an isa, but I wasn't taking advantage of the capital gains tax when I found out it was too late. So I decided I'll never sell. But then that plan didn't work because when the labor government came in there are a lot of rumors that they were going to waste capital against tax. So for some of you that read my Sunday weekly this letter, one of the titles was why I'm selling all my shares. This was in October 2024. And then I went ahead, I sold all my share that were not inside the nyser. That move saved me thousands of pounds because a few days later the capital gains tax was increased. For basic rate taxpayer it went from 10% to 18%. That's almost like double of a higher rate taxpayer it went from 20 to 24. And now this budget again in October or November. This recent budget dividend tax has also increased by 2%. For basic rate taxpayers is gonna buy 2% for higher taxpayer it's gonna buy 2%. So it's gone from 8.75% to 10.75%. And for higher taxpayers growth from 33, 33.75, 35.75. So that means you want to be systematic, to be looking at everything from adapt 360 point. Okay, now before I go any further, I'm just going to ask anyone who was here on Saturday, I know this is a totally fresh session on his own, but if you are here on Saturday, is there anyone that wants to share one thing you learned, one new thing you learn about taxes that you're going to apply in terms of your tax efficiency?
Just like we've discussed, that time I opened a SIP account and then contributed. The first time I did that time I was told I was going, yes, and before the tax here, I had to put up the money in the SIP account, then continue, continue my contribution. So recently I don't do the self assessment. I was able to claim up to 13000 because I have to do it all at the.
Yeah.
Wow, that was interesting.
So I love that. I love that. I know when you, when you joined them, the mastermind earlier, you were a little bit stressed. I remember you were quite. Not a little bit. You were very stressed because you had these letters, brown envelopes and then you kind of like learned how to be tax efficient. You leveraged your pension, you contributed money to your pension. This is the best news. Okay. Because the last time I had someone clean that Much also was Dr. N.K. the acute medicine consultant and the mastermind who cleaned as much as £8,13,000. So that's fantastic. I hope that next year will even be much better. It's just you figuring out the system. You didn't buy the books. You're playing the game that they've given us. Fantastic. Thank you so much for sharing that. Thank you. All right.
Andy. I was here on Saturday as well.
Oh, okay. Please share.
Yes. Because I, I read the book a bit much more before attending the sessions. I was trying to gauge what, what I think was more of a practical session compared to the theory base.
Yes.
Chapter five. There are two things I was worried about before I attended.
Okay.
One was because I was doing a couple of locals. I think I'm working a bit too hard. And yeah, five days a week, about 12 and a half sessions. So I think one, the IR35 definition, things falling outside that I was worried about that initially. So that gave me some confidence. The other thing is because I looked at my income and felt definitely I am caing that tax band. And I wanted to see how efficient I could make my Adjusted income.
Net income.
Net income to be. So of course we talked about it slightly in the group before and set up that ship. So. Yeah, and I'm hoping that. I think this year will not be so much of a problem, but for the next tax year I should be able to ensure that it doesn't get across that limit and would ensure that even the, what you call it, the.
High income child benefit stuff, benefit charge, you'll get all. All of that. Perfect. Excellent. Thank you so much. I mean your locum gp. Yeah, right. Yeah, look him gp. I do both, both local and salary. And Prash said consider going back and topping up my pension port and look at Genius Sip. So that's what you got from last session. And let's see, Shelly said use my ISAs to the maximum. That's beautiful. So bring out basically this checklist I shared. If you don't have it, let me know now. I'll share it again on the WhatsApp group. It's easier from there. Open it up is the ABCDE checklist. We're going to walk through all of it one by one and if you've got any questions along the line, I'm more than happy to answer. So the ABCD checklist you see right there on the group. If you open up yours, we'll go through it. We'll do our best to cover it next 90 minutes. Maybe if we don't finish in the next 90 minutes, we'll just continue in the group. But my goal is to go through the whole ABCD framework in the next 90 minutes. Okay, so we'll start from A is basically allowances. B is your business structure. Even if you don't have a business, you need to look at whether there's an opportunity. The business structure like what Favor has just mentioned, right? So C is clawbacks. Okay. And D deductions. So E is estate and exit. Okay. So basically what I want to do now is go through all the allowances and thank you, Edie, for designing this beautiful checklist. It is my team member. So you've got a checklist. Pull it out and I want you to tick whatever you've been doing or whatever you're missing out. I want us to deal with it. Sam.
